Assessing GARCH model’s predictive ability from Traders’ Point of View∗ (Preliminary Version)

نویسنده

  • Rocco Mosconi
چکیده

This paper shows that, even if volatility is accurately predicted by correctly specified GARCH models, however such predictions are not very useful for traders when the conditional volatility does not vary "enough" over time, being therefore quite close to the unconditional one. It is shown that a low R in the Mincer-Zarnowitz regression implies flat (although correctly predicted) volatility, and therefore leads to extremely poor performances of GARCH based investment strategies. Conversely, a high R is associated with good performances of GARCH based trading strategies.

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تاریخ انتشار 2006